Is the Dollar Falling Apart?
The U.S. dollar ($USD) chart was set up for a correction, after trending strongly down pretty much since the beginning of the year. A couple of days ago, it reversed and started up. Now it's heading down again without ever correcting. What's going on?
Well, we could look at what's going on as just "whipsawing" - a period where prices, for whatever reason, jerk up, then down, then up...making trading difficult, but, in the end, not being particularly significant.
But maybe something else is going on. Maybe the steady, relentless deterioration of the value of the dollar since the beginning of the year will simply continue, but at an accelerating pace.
The thing is, there's a big "sword of Damocles" hanging over the USD. We all see it. It's hanging there because of the fiscal disorder of the U.S. governments finances. There's no secret to it. Unless the U.S. government gets its fiscal house in order, the value of the dollar will only continue to deteriorate. And if you've been following recent federal budget negotiations, the government has given no sign that we can expect any substantial improvement any time soon.
So will the dollar simply collapse in value? For that to happen, people will have to decide to just dump, i.e. sell, their dollars. And that's not so easy to do. Where will they put their money if they sell their dollars? The EURO? The Yen? But if you look at the Euro countries and their own fiscal problems, or Japan and its fiscal problems - never mind the recent catastrophic earthquake - those currencies have their own problems.
What about gold - or even silver? Well, looking at gold and silver, it's pretty clear that someone's buying them. But we're nowhere close to either metal being in a bubble. Still, the fact that both metals' prices keep setting new highs does mean that the value of the dollar has been going down.
So I'm keeping my eye on the U.S. dollar and the price of gold, as well as the price of silver. That will tell me just how bad things are getting for the dollar.
The first thing it will tell me is whether international holders of dollars are losing patience with the U.S. government's dilly-dallying over the budget. If the dollar loses value against gold and silver, and it loses value against other currencies as well at the same time, then we may be approaching the time when the dollar loses its status as the international reserve currency. If - or maybe I should say when - we get to that point, the U.S. will face a more serious drop in its standard of living. At that point, U.S. citizens will want to get out of dollars too, since the dollar will buy less and less. And as opposed to the deterioration of the dollar over years that has already occurred, people will notice the deterioration of the dollar. They'll see prices go up month to month, even week to week. And I'm guessing some people - I hope not too many - will panic.
What will that be like? Well, we'll have talk about that some other time. I'm concerned about it, though.
Meanwhile, our friend the TED Spread has just sat down on its 50-day moving average. It's trend up has not significantly reversed, so at this point it's continuing to give the first hint at trouble ahead in both the credit markets and the stock markets. It's not screaming yet, and it could very well reverse trend as so many other trends have done lately. Maybe it will reverse just like the dollar reversed what looked like a correction of its down trend. Maybe. In any event, we're watching the TED Spread closely too.
Well, we all get some rest tomorrow. Good Friday is a stock market holiday. Yes, even in these secular times we live in, the stock market still closes on Good Friday.
So to everyone celebrating a holiday, Happy Passover, and Happy Easter!
Well, we could look at what's going on as just "whipsawing" - a period where prices, for whatever reason, jerk up, then down, then up...making trading difficult, but, in the end, not being particularly significant.
But maybe something else is going on. Maybe the steady, relentless deterioration of the value of the dollar since the beginning of the year will simply continue, but at an accelerating pace.
The thing is, there's a big "sword of Damocles" hanging over the USD. We all see it. It's hanging there because of the fiscal disorder of the U.S. governments finances. There's no secret to it. Unless the U.S. government gets its fiscal house in order, the value of the dollar will only continue to deteriorate. And if you've been following recent federal budget negotiations, the government has given no sign that we can expect any substantial improvement any time soon.
So will the dollar simply collapse in value? For that to happen, people will have to decide to just dump, i.e. sell, their dollars. And that's not so easy to do. Where will they put their money if they sell their dollars? The EURO? The Yen? But if you look at the Euro countries and their own fiscal problems, or Japan and its fiscal problems - never mind the recent catastrophic earthquake - those currencies have their own problems.
What about gold - or even silver? Well, looking at gold and silver, it's pretty clear that someone's buying them. But we're nowhere close to either metal being in a bubble. Still, the fact that both metals' prices keep setting new highs does mean that the value of the dollar has been going down.
So I'm keeping my eye on the U.S. dollar and the price of gold, as well as the price of silver. That will tell me just how bad things are getting for the dollar.
The first thing it will tell me is whether international holders of dollars are losing patience with the U.S. government's dilly-dallying over the budget. If the dollar loses value against gold and silver, and it loses value against other currencies as well at the same time, then we may be approaching the time when the dollar loses its status as the international reserve currency. If - or maybe I should say when - we get to that point, the U.S. will face a more serious drop in its standard of living. At that point, U.S. citizens will want to get out of dollars too, since the dollar will buy less and less. And as opposed to the deterioration of the dollar over years that has already occurred, people will notice the deterioration of the dollar. They'll see prices go up month to month, even week to week. And I'm guessing some people - I hope not too many - will panic.
What will that be like? Well, we'll have talk about that some other time. I'm concerned about it, though.
Meanwhile, our friend the TED Spread has just sat down on its 50-day moving average. It's trend up has not significantly reversed, so at this point it's continuing to give the first hint at trouble ahead in both the credit markets and the stock markets. It's not screaming yet, and it could very well reverse trend as so many other trends have done lately. Maybe it will reverse just like the dollar reversed what looked like a correction of its down trend. Maybe. In any event, we're watching the TED Spread closely too.
Well, we all get some rest tomorrow. Good Friday is a stock market holiday. Yes, even in these secular times we live in, the stock market still closes on Good Friday.
So to everyone celebrating a holiday, Happy Passover, and Happy Easter!
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